DIWALI GIFT TO EMPLOYEE AFTER FBT-INCOME TAX

Here we discuss Tax implication of Diwali gift to employee after withdrawal of FBT.

Rule 3(7)( IV) of the Income-Tax rules relating to valuation of perquisites provides that:
“the value of any gift, or voucher, or token in lieu of which such gift may be received by the employee or by member of his household on ceremonial occasions or otherwise from the employer , who is not liable to pay Fringe Benefit Tax (FBT) shall be determined as the sum equal to the amount of such gift.
However, where value of such gift, voucher or token, as the case may be, is below Rs 5,000 in the aggregate during the previous year, value of perquisite shall be taken as nil.”


In the FBT regime, employer had to bear the liability of paying FBT on 50% of the value of any gifts given by him to the employee .
Thus, the effective tax burden, considering the 30% tax rate in case of the employer being a firm or company, worked out to 15%.

With abolition of FBT from April 1, 2009, tax liability on the value of such gifts as per the above rule has now shifted in case of the employee , to be borne by him at his applicable marginal rate.


However, good news is that if value of such gift, or voucher, or token in lieu of which such gift may be received by the employee or a member of his household from the employer, on any ceremonial occasion during the year, is below Rs 5,000 (in the aggregate during the relevant financial year), same would be exempt from tax.
Thus a gift of gold or silver coin or a household article, or even a gift voucher or token against which any article can be purchased, within the monetary value of Rs 5,000 can be given tax-free to your employee the coming Diwali.
Obviously, what you spend in this regard is fully tax deductible as business expenditure in your hands as an employer , fortunately not attracting even any FBT now.
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GIFT OF IMMOVABLE PROPERTY AFTER 1.10.2009 & ISSUES

Taxation of transactions in immovable property without consideration or for an inadequate consideration, if registration not done within 30th September, 2009
1.      Introduction :
The newly inserted provisions of section 56(2)(vii) have been made applicable from 1st October, 2009 in case the property is received by any individual or a HUF.
These provide –
a) Where immovable property or any other property is  received without any consideration and the stamp duty value (in case of immovable property)/ fair market value (in case of any other property) of such property exceeds Rs.50,000, the entire stamp duty value or fair market value (as the case maybe) of such property would be taxable as income from other sources.

b) Where immovable property or any other property is received for a consideration and such consideration is less than the stamp duty value (in case of immovable property)/ fair market value (in case of any other property) of the property by an amount exceeding Rs.50,000, the stamp duty value/ fair market value reduced by the consideration received, would be taxable as income from other sources.
2.      Cases in which provisions will not be applicable -

The above provisions will not be applicable where property is received from a relative or on occasion of marriage of the individual or under a will or inheritance or contemplation of death of the donor or from local authority, approved fund or trust.
The above provisions will also not be applicable where property is received by a company, partnership firm or any person other than an individual or HUF. That means the provisions are applicable only if the property is received by an individual or HUF.
The above amendment will take effect from 1 October 2009, so these will not hit to the cases in which the immovable property has been received on or before 30th September, 2009.
3.      Situations where property was purchased prior to 1st October, 2009 but not registered :
In such cases, there is a possibility that some officials of the department may try to take a plea which is favourable to revenue and may say that in case of immovable property transfer takes place when it is registered.
However there are some provisions, which may be of help to the taxpayers. These are given below :
a) Section 2(47)(v)  of the Income Tax Act states  -
"Transfer in relation to capital assets, include -
" any transaction involving the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act"

b) Section 53A of the Transfer of Property Act -

Where any person contracts to transfer for consideration any imovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasobale certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract;

and the transferee has performed or is willing to perform his part of the contract,

then notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:

Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. 
4.      Conclusion : 
It is important to note that the new provisions are applicable to properties received by Individuals or HUFs on or after 1st October 2009. This suggests that whatever property is received (purchased or possession received) before 1st October 2009 will not come under the purview of new provisions. This view is supported by the definition of transfer contained in section 2(47) read with section 53A of the Transfer of the Property Act if the necessary stipulations are fulfilled.

“Receive” in lay-man’s language means signing the agreement, paying the consideration and taking the possession. 

The existing provision and also the new provision does not state that the date of receipt of immovable property means date of its registration.
Under the above circumstances, I am of the opinion, that if one fulfills the stipulations of section 2(47) of the Income Tax Act, 1961 read withSection 53A of the Transfer of Property Act , then there is good ground to defend in case of property purchased before 1.10.2009.
So we can conclude that property which is received/ purchased before 1st October 2009 though not registered will not be hit by the provisions of section 56(2)(vii), provided the stipulations as mentioned above are fulfilled.

However in view of the prevailing confusion, I suggest that the Central Board of Direct Taxes may also kindly issue a clarification on this issue to help the taxpayers.
Narayan Jain, LL.M., Advocate
Govt has also issued a press release regarding above issue which is reproduced hereunder



Provision regarding taxability of any Gift-in-kind, value of which exceeds Rupees Fifty Thousand
Press Release No. 402/92/2006-MC (21 of 2009), dated 30-9-2009

The Income Tax Act 1961 (the Act) has been amended with effect from 1st October 2009 to provide that any gift-in-kind, being an immovable property or any other property, the value of which exceeds Rs.50,000 (rupees fifty thousand), will become taxable in the hands of the donee, being an individual or a Hindu Undivided Family (HUF), as income from other sources under clause (vii) of sub-section 2 of section 56 of the Act. Therefore, any such person who receives a gift of any such property on or after 1st October 2009 must pay the income tax due on the value of the gift and disclose the taxable value of such property in the return of income for assessment year 2010-11 and subsequent years.

The following types of gifts will, however, not be subject to tax, i.e. gifts (a) from a person who is a relative; (b) on the occasion of marriage of the individual; (c) under a will or by way of inheritance; (d) in contemplation of death of the donor; (e) from any local authority as defined in the Explanation to section 10(20) of the Act; (f) from any fund or trust established under section 10(23C) of the Act; (g) from any trust or institution registered under section 12AA of the Act.

Relative is defined in the Act as (i) spouse; (ii) brother or sister; (iii) brother or sister of the spouse; (iv) brother or sister of either of the parents; (v) any lineal ascendant or descendant; (vi) spouse of any of the relative at clauses (ii) to (v); of the individual. Gifts received from these relatives will not be subject to tax.

Earlier cash gifts exceeding Rs.25,000 were subject to tax with effect from 1st April 2004. Later the Act was amended with effect from 1st April 2006 to tax all cash gifts having aggregate value exceeding Rs.50,000. Cash gifts also enjoy exemptions as is available for gifts-in-kind.

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Critical areas on DTC for detailed examination identified: FM

Finance Minister has announced that the Government has identified seven critical areas on the Direct Taxes Code for further detailed examination. At an interactive session with representatives of trade and industry from all over the country, here today, Shri Pranab Mukherjee said that the areas identified after interactions with all stakeholders are: 

  • The concept of Minimum Alternative Tax (MAT) based on gross assets; 
  • Capital Gains Taxation in the case of non-residents; 
  • The Income Tax Act and the Double Taxation Avoidance Agreement (DTAA); 
  • General Anti-Avoidance Rule (GAAR); 
  • Issues relating to effective management control and taxation of foreign companies in India;
  •  Taxation of charitable organizations; and 
  • Shift from EEE to EET taxation system.


On the apprehensions expressed regarding the time schedule for implementation of the new Direct Taxes Code, the Finance Minister assured that next steps would be taken only after a comprehensive review of the draft Direct Taxes Code by taking on board the suggestions received. Every effort would be made to meet the aspirations and expectations of our taxpayers and our vibrant corporate sector.

Shri Mukherjee said that it has been the endeavour of the government to incorporate the best practices prevailing across the globe and to use innovative methods for attaining equity—vertical and horizontal, ensure growth with sustainability, create stable fiscal eco-system and have well regulated free markets. The new Direct Tax system would also take into account established and time tested practices which have withstood judicial scrutiny. He said, “We want to present the stakeholders with a tax regime which is simple and broad based leading to lowering of tax rates, better tax compliance and reduced litigation.”

The Finance Minister said that it has been two months since the proposed draft direct tax code was released for public debate and he was moved by the amount of interest and intellectual debate it has generated amongst various sections of taxpayers, tax professionals and general public. We are receiving thoughtful feedbacks on our website and through other means—trade and industry associations, professional bodies and others, he added.

Shri Mukherjee said that he has kept his promise by putting the draft code in public domain within 45 days and he would like to expedite to give it a final shape. While thanking the industry and trade associations for enthusiastically participating in today’s deliberations, Shri Mukherjee said that he looks forward to their suggestions in making the new Direct Taxes Code an effective instrument for meeting the economic challenges and development priorities of the country. The outcome of the discussions would be used for modifying the proposals contained in the draft Direct Taxes Code, the Minister said.

Minister of State for Finance, Shri S.S. Palanimanickam, Revenue Secretary, Shri P.V. Bhide and senior officers of the Finance Ministry were also present at the interactive session.


*******


BSC/BY/GN-349/09
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HIGHLIGHTS OF e- FILING SEASON AY 09-10 ( up to 30/09/2009)

1






HIGHLIGHTS OF e- FILING SEASON AY 09-10 ( up to 30/09/2009)

(1) COMPARATIVE PROGRESS OF e-FILING OF RETURNS
Form Type
RETURNS RECD. FROM 01/04/09 TO 30/09/09
RETURNS RECD. FROM 01/04/08  TO 30/09/08
% CHANGE FROM L.Y
A.Y. 09-10
A.Y. 08-09
TOTAL
A.Y. 08-09 (incl of AY07-08)
ITR-1
5,50,148
15,595
5,65,743
4,56,291
24.0%
ITR-2
4,97,313
26,723
524,036
4,65,993
12.45%
ITR-3
66,361
6,434
72,795
69,652
4.51%
ITR-4
9,13,679
88,113
10,01,792
9,67,275
3.57%
ITR-5
3,87,027
10,797
3,97,824
3,87,651
2.62%
ITR-6
3,71,431
14,838
3,86,269
354,416
9.0%
ITR-8
503
66
569
743
-23.4%
TOTAL
27,86,462
1,62,566
29,49,028
27,02,021
9.14%
ITR 7 (for not for profit Trusts) has not been Notified for e-Filing

(2) TOTAL RETURNS RECEIVED ON LAST 3 DAYS
DATE
RETURNS RECEIVED
28/09/2009
64,854
29/09/2009
1,92,168
30/09/2009
2,73,237
(3) HIGHEST RETURNS RECD. PER HOUR .......24870         

(4) HIGHEST RETURNS RECD. PER MINUTE .........856         

(5) RETURN RECD. FROM VOLUNTARY CATEGORY ....73.4%  

(6) State-wise distribution of E-returns filed for AY 2009-10 (and AY 2008-09 arrear cases)
State
ITR-1
ITR-2
ITR-3
ITR-4
ITR-5
ITR-6
ITR-8
Total
MAHARASHTRA
1,14,360
1,43,833
19,495
2,44,512
76,485
91,769
163
6,90,617
KARNATAKA
1,17,596
68,810
4,923
76,780
29,315
19,079
65
3,16,568
DELHI
67,354
62,256
8,718
1,09,737
26,764
84,065
166
3,59,060
TAMIL NADU
69,705
45,760
5,651
78,391
39,670
24,766
27
2,63,970
GUJARAT
20,361
38,436
10,499
1,15,345
48,180
23,440
23
2,56,284
UTTAR PRADESH
29,552
24,810
3,280
59,987
28,580
12,771
19
1,58,999
ANDHRA PRADESH
34,647
20,457
2,484
38,274
30,650
18,843
20
1,45,375
WEST BENGAL
17,747
28,665
3,103
46,377
23,657
56,404
12
1,75,965
PUNJAB
11,222
17,394
4,378
57,398
22,367
6,589
10
1,19,358
MADHYA PRADESH
9,639
17,671
2,175
43,781
9,529
6,213
3
89,011
KERALA
18,977
9,522
2,090
19,771
10,762
6,181
10
67,313
HARYANA
20,019
12,534
1,205
21,604
9,616
4,738
29
69,745
RAJASTHAN
8,201
16,259
2,253
36,863
14,583
12,180
5
90,344
ORISSA
5,985
2,068
201
5,032
4,048
2,949
3
20,286
JHARKHAND
3,421
2,105
221
7,806
3,090`
1,454
2
18,099
CHANDIGARH
2,810
2,486
522
4,570
1,816
2,829
3
15,036
CHHATISHGARH
1,663
2,851
234
8,295
2,570
1,695
2
17,310
GOA
1,650
1,374
320
4,947
1,695
2,062
2
12,050
BIHAR
2,311
1,472
192
4,236
2,351
1,890
0
12,452
UTTARANCHAL
2,148
1,108
229
4,621
2,824
958
2
11,890
ASSAM
1,307
1,247
125
4,273
2,290
2,072
0
11,314
HIMACHAL PRADESH
1,248
620
138
3,324
1,803
808
0
7,941
Outside India
794
953
110
966
180
926
0
3,929
JAMMU AND KASHMIR
1,069
473
158
2,174
2,667
524
2
7,067
PONDICHERRY
961
420
41
883
877
410
0
3,592
MEGHALAYA
112
92
9
540
135
214
0
1,102
ANDAMAN AND NICOBAR ISLANDS
171
110
10
309
95
43
0
738
DADRA AND NAGAR HAVELI
152
71
2
223
290
62
1
801
DAMAN AND DIU
87
48
24
213
352
79
0
803
NAGALAND
26
41
0
318
38
44
0
467
SIKKIM
137
24
0
34
11
10
0
216
ARUNACHAL PRADESH
107
23
0
66
28
42
0
266
TRIPURA
114
21
2
83
450
80
0
750
MANIPUR
64
16
3
41
52
76
0
252
MIZORAM
21
4
0
10
1
3
0
39
LAKHSWADEEP
5
2
0
8
3
1
0
19
Total
5,65,743
5,24,036
72,795
10,01,792
3,97,824
3,86,269
569
29,49,028
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